Good afternoon, everyone, and welcome to Tesla’s First Quarter 2022 Q&A Webcast. My name is Martin Viecha, VP of Investor Relations, and I’m joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q1 results were announced at about 3 p.m. Central Time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events and results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question-and-answer portion of today’s call, please limit yourself to one question and one follow-up. Please use the Raise Hand button to join the question queue. Before we jump into Q&A, Zach will have some opening remarks.

Yes. Thanks, Martin. Just to start off here, Q1 was a challenging but extremely successful quarter for the Company. Despite numerous supply interruptions, including shutdowns at our Shanghai factory and nearby suppliers due to COVID, we’ve continued making progress and achieved our best-ever vehicle deliveries. Last quarter, we demonstrated a series of new financial records, including revenue, gross margins, operating margin, and bottom line profitability. GAAP automotive gross margin reached 32.9% and for the first time exceeded 30% when excluding regulatory credits. Higher pricing continues to positively impact our financials as we make progress delivering cars and our growing backlog. Note that, for most vehicles, our delivery wait times are quite long. Thus, cars delivered in Q1 generally carried pricing set in prior quarters and at levels lower than cars being ordered today. Our per unit vehicle cost increased as well. Inflation, raw material prices, expedited and logistics costs continue to impact our cost structure. Factory shutdowns also occurred with little to no notice. Hence, we are unable to take action to plan those interruptions in a cost-efficient manner. Additionally, we saw a slight mix shift towards more profitable vehicles, including the Model Y. We also recognized a one-time benefit of $288 million from credit revenue relating to a regulatory change in the U.S. CAFE penalty, without which credit revenue would have declined compared to the same period last year. The energy business has continued to be impacted by macro conditions, more severely than the vehicle business. Our storage products, our need for chip supply, and new import processes have impacted the supply of certain components for our solar systems, which is reflected in our solar volume for the quarter. OpEx as a percentage of revenue continues to reduce, driven by higher revenue, lower stock-based comp expenses, and other items. As a result of our ongoing improvements in operating leverage, we achieved a record operating margin of over 19%. Note that commissioning costs for our factories are in R&D as Berlin started production in late March and Austin in early April. These costs will be in automotive costs going forward, given these factories are now producing customer-sellable cars. Our free cash flows have remained quite strong, yet were impacted by working capital related to lower-than-planned production. Additionally, we have reduced our debt, excluding product financing, to nearly zero. Looking ahead in the immediate term, a few things to keep in mind for Q2. First, we’ve lost about a month of build volume out of our factory in Shanghai due to COVID-related shutdowns. Production is resuming at limited levels, and we’re working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2. Second, as I’ve mentioned before, Austin and Berlin are just starting their ramps. And thus, those inefficiencies will start to flow through our gross margins in Q2. Third, we do have higher ASPs in our backlog, which will help to offset some of these headwinds. We continue to drive towards further strengthening of our financials in the second half of the year and believe our 50% or above growth rate remains achievable for the year. I want to conclude by thanking the Tesla team, our suppliers, and our new customers for a great first quarter.

Thank you very much. And Elon has some opening remarks as well.

Sure. Some of my comments may overlap with what Zach mentioned, but I believe they are worth reiterating. The first quarter was yet another record period for us, achieving the highest deliveries, profit, and an operating margin of 19%. This accomplishment came despite significant chip shortages, various logistics challenges, and an overall tough quarter. I’d like to commend the Tesla team for achieving record profitability and production in the face of these challenges, particularly the Tesla China team at our Shanghai factory. They faced substantial obstacles due to COVID shutdowns but still managed to produce a remarkable number of high-quality vehicles. We are already operational again in the Shanghai factory. As Zach pointed out, we are confident in achieving 50% growth in vehicle production in 2022 compared to 2021. I believe we could even target a 60% increase over last year. We have ramped up production at Giga Berlin and Giga Texas in the last few months, with both factories operating effectively. The initial ramp-up at new factories may seem slow, but it tends to grow exponentially. I have strong confidence in both teams, and while we expect a slow initial ramp, I foresee significant growth leading to high volumes by the end of this year. We are also developing a new vehicle I mentioned during the Giga Texas opening, which is a dedicated robotaxi designed for autonomy, lacking a steering wheel or pedals. It includes several exciting innovations aimed at achieving the lowest cost per mile or kilometer when accounting for everything. We aspire to reach volume production of this vehicle by 2024, which I believe will be a major contributor to Tesla’s growth. Additionally, we are on track to reach volume production of the Cybertruck next year. I want to express my gratitude to Tesla employees for their hard work and to our suppliers who have gone above and beyond. We have an outstanding group of suppliers, and I am sincerely thankful for their dedication in keeping our factories operational. We recently surpassed 1 million units produced over the last year and aim for 20 million units annually. We are at about 5% of our goal and are experiencing rapid growth year over year. We are confident in exceeding 50% annual growth for the next several years. Furthermore, there’s Optimus, and I am surprised by how few people recognize the significance of the Optimus robot program. Its importance will become clearer in the coming years, and I firmly believe it will be worth more than our car business or FSD. Our insurance segment is also performing well, and we plan to address the parts shortages that have limited our progress in batteries and solar. We expect both batteries and solar to thrive this year. Overall, the future looks incredibly bright. I have never been more optimistic or excited about Tesla’s future than I am right now. Thank you.

Thank you very much. Let’s go to the first investor question. And the first investor question is, Elon has historically provided FSD timelines with not optimal accuracy. We love his optimism for the 2022 release, but is there any data Tesla can share with investors to help them make their own conclusions on progress being made? Interventions per mile driven, or any other data?

Sure. In my experience with technology development, I have never encountered so many near breakthroughs as I have with full self-driving. Ultimately, to achieve full self-driving, we first need to address real-world artificial intelligence, which remains unsolved. The entire road system is designed for biological neural networks and human vision. To enable full self-driving, we need neural networks and cameras that match or exceed human capabilities. I believe we will reach that level this year. To assess this for yourself, I recommend joining the Tesla full self-driving beta program, which currently has over 100,000 participants and is expected to grow significantly this year. My suggestion is to join the beta program, experience it firsthand, and observe the improvement with each release. We typically release updates approximately every two weeks, and while you might see a few setbacks, the overall rate of improvement is extraordinarily fast. So, my advice is to literally try it.

Thank you. The second question is, how much of an impact will the production shutdown in Shanghai have in Q2? What is the timeline for localizing the Model 3 in Europe, or will newer models be prioritized in Berlin?

We did experience a significant loss in production days due to upstream supplier challenges, where many suppliers also faced production losses. However, Giga Shanghai is recovering rapidly. Despite facing some new challenges, I believe we will achieve record weekly output from Giga Shanghai this quarter, although we may miss a couple of weeks. Consequently, vehicle production in Q2 is expected to be similar to Q1, possibly slightly lower, but there’s a chance we might exceed that. Overall, it should be roughly on par. For Q3 and Q4, we anticipate much higher production levels, and it seems likely that we will produce over 1.5 million cars this year, which is my best estimate. Regarding the Model 3, it’s crucial for new factories to minimize complexity and variation, which is why Giga Berlin and Giga Texas are concentrating on the Model Y. The transition from completing a factory to producing high-quality vehicles in volume typically takes about 9 to 12 months from the start of production. We hope to improve our ramp-up time, possibly reducing it a bit, but reaching the 5,000 units per week level has generally taken us around 12 months from the start of production.

Thank you. The next question is, how much raw material exposure do you have, measured roughly in percentage of cost of goods sold for example, in a given quarter versus one to two years out, both direct and indirect? Separately, how do you think about price increases versus prioritizing higher mix vehicles going forward?

I want to address the price increases. It might seem unreasonable to raise vehicle prices, especially since we had record profitability this quarter, but the demand is high, with a long wait list for our vehicles. Some orders will see wait times extending into next year. The current prices are based on anticipated growth in supplier and logistics costs that we expect over the next 6 to 12 months. This is why we are increasing prices now; cars ordered today may not be delivered for up to a year. Our demand is strong, and we are currently limited by our production capacity.

Raw material exposure?

Yes. Just to add to what Elon is saying, there are different ways to calculate raw material exposure. I think the simple way, we estimate we’re around 10% to 15% of our cost structure exposed to raw materials. And just to clarify a couple of things on that. So, we’ve been experiencing increases in cost in general, but also raw materials for a number of quarters now. That pace picked up in Q1, so last quarter. And what we’re seeing for Q2 is slightly higher than that as well. And as indices move, it doesn’t impact us immediately or directly. In some cases, we have contracts with suppliers. But then as those contracts expire, we have to renegotiate them, so that there can be a lag. In some cases, our contracts do directly reflect movements in commodity prices or raw material prices. But the timing in which Tesla pays for that has a lag associated with it as well based on the contract. And so, to Elon’s point, what we’re trying to do here, because it’s quite an unprecedented situation of raw material movement and all of these various lags and uncertainty around renegotiating contracts, is we’re trying to anticipate where things will go and make sure the pricing that we have put in place at the time that those raw material cost increases hit us that they align and that the company can remain financially healthy in various scenarios as we look out over the next four quarters.

Okay. Thank you very much. The next question is, why does Tesla continue to fight dealership laws on a state-by-state basis versus taking it federal? Separately, why isn’t Tesla using 800-volt architecture in its vehicles? What are the advantages or disadvantages?

So, from Tesla’s standpoint, obviously, we’d like to have federal legislation that allows direct sales in all states, but we have not seen willingness on the part of the Congress to enact such law that would override a variety of state laws. So unfortunately, we have to fight it on a state-by-state basis. And Drew, do you want to answer the 800-volt question?

Yes, sure. On the 800-volt thing, yes, so it’s really a case-by-case thing. For the smaller platform vehicles like 3 and Y, there are some wins and losses with 800 volts; not everything is better. And so, we look at that platform, and we’re not ignoring the reality that you can go to a higher voltage, but there’s nothing really encouraging us to do so on that platform. It’s really about mass and power. And as you look at bigger vehicles, there are some advantages on those bigger vehicles.

Let me just quantify that. Basically, our estimate is that going from 400 to 800 volts might save $100. It’s not really moving the needle.

And you’re changing many things. It’s charging infrastructure all the way through the entire vehicle system to get maybe $100.

Yes, exactly. In the U.S., the household power is typically 110 volts, while in some places it can be around 220 volts. However, this difference doesn’t significantly impact how appliances function; they operate similarly in Europe and the U.S. The benefits of switching to a higher voltage are minimal, and the costs are considerable. Over a long term, such as several years, transitioning to an 800-volt architecture could make sense, but it requires a substantial volume of vehicles to justify the expense of moving from 400 to 800 volts.

Yes, that’s fair. So, we do consider that for Semi and Cybertruck. But for the 3/Y platform where we’ve got everything running and the benefit is questionable, it’s minimal.

Yes. It’s basically zero for robotaxi.

Yes. For robotaxi, yes, it doesn’t make sense.

Okay. Let’s go to the next question. Next question is, how are the current 4680s performing versus expectations set during the Battery Day in terms of expected range increase and dollars per kilowatt hour?

Yes.

Yes. We’re working in all the areas we shared on Battery Day, and we have sort of consistent progress across all of those areas towards achieving the five-year cost trajectory goals for the cost within our control, but we do not control all the commodity costs. So, that’s an exception I needed to call out. Similar to Model 3, it will take us several years to get rates and yields to the point where everything that we’ve discussed is achieved. Our priority was on simplicity and scale during our initial 4680 and structural battery ramps. And as we attain our manufacturing goals, we will layer in new material technologies we are developing and higher-range structural pack provisions.

I think maybe, in a nutshell, I think it probably is fair to say that 4680 and structural pack will be competitive with the best alternatives later this year. And we think we’ll exceed the best alternatives next year.

Yes. I mean we have some good existing proofs, right? Like we’ve built the facility here in Texas, like we know how much we spent on capital equipment in the facility. And it’s more than 5x less than prior technology installations. So, we’re saving huge on CapEx, on utilities, and personnel. We know what those loads are and how many people are needed to run what is basically in a highly automated factory. And we have massive reductions in both of those. So, like the cost model is well understood. It’s really about rate and yield, which will come in time, as Elon said, over the course of this year and next.

Thank you. And the next question is, how does Tesla plan to secure raw materials required to scale to extreme size?

This is a topic we consider frequently. It really depends on what we mean by extreme size. For instance, when looking at vehicle production levels of $5 million, $10 million, or $20 million, it's essential to analyze the macroeconomic factors, such as the quantities of lithium, nickel, iron phosphate, graphite separators, and electrolytes needed. We need to think about the overall tonnage for the world, as we aim to identify the limiting factors that could accelerate the transition to a sustainable energy future. Tesla will address the most critical limiting factors. Currently, we believe that the mining and refining of lithium is a significant constraint, which is contributing to a noticeable increase in costs. In fact, it's the largest cost driver right now, at least in percentage terms. To clarify for those who might not be fully aware, the actual lithium content in a lithium-ion cell makes up only about 2% to 3% of the cell.

5 kgs a car.

Yes, exactly. 5 kg. It's called lithium-ion cell, but by far, the most expensive and heaviest item in the cell is the cathode, which is the nickel or iron phosphate. We are carefully examining all the raw materials and trying to determine how we can expedite the total amount of raw materials needed to transition the world to sustainability. We don’t have enough time on this call to go through all the details, but we are considering these aspects and expect to make some exciting announcements in the coming months.

Yes. One thing I want to call out is like we’re also committed to recycling at all of our cell factories. We’re recycling 50 tons a week right now in Reno and ramping to 150 with all of that reclaimed material going directly back into our cathode supply chain. So, we’re looking at the beginning and end of life needs here.

And that’s true like since Reno, we built a Gigafactory and we started doing that with batteries. But as we build newer factories or vehicles, for example, Giga Texas here, where we are today, we said was all of its non-yielded or scrap aluminum from the stamping shop directly into the casting shop. We regrind any plastic figures out. And so, we’re really concerned about raw materials, not just like mining them and consuming them, but when we get them in the door, using 100% of them.

Yes, that's an excellent point. We are installing furnaces for aluminum, similar to the Model Y that we've constructed here at Giga Texas, which features both a front and a rear body casting. We can take scrap from the casting machine along with the gating that comes out and return that to the aluminum melting pot. Additionally, as Elon mentioned, we can also include any stampings and other aluminum scrap in the melting pot. In fact, we've discovered that we can use wheels from almost any car as well.

Yes, yes. So, we’re going to be recycling the casting aluminum wheels from legacy gasoline cars as well and throwing that in the melting pot for our aluminum cast body of Model Y. And also we’ll be moving to the sort of cast part rear body in all vehicles over time? Well, actually, maybe not S/X, but 3/Y.

Thank you. At what rate do you expect Berlin and Austin to ramp relative to Shanghai? Are you able to leverage learnings from Shanghai, or are the processes substantially different in the new factories?

We expect to ramp production faster than in Shanghai because we have gained significant experience. Our veteran teams have been through the ramp process, particularly with the Model Y at multiple locations, and we are sharing the knowledge we’ve acquired. We aim to avoid complacency, but the ramp should be quicker due to our improved understanding and the simplifications we've made in the Model Y production processes. This should allow us to achieve a faster ramp in both Texas and Berlin.

But we also had a structural casting, about 30% less robots; we expect to almost double the capacity for body, for example, reducing the number of robots, but doubling our capacity in a lot of areas.

Yes, the body line for the structural pack is significant, and with a structural pack along with front and rear castings, the size of the body shop decreases by more than 60% compared to the traditional method of car manufacturing.

We have a structural battery where the floor acts as the battery. The seats are placed on the battery, which is then installed in the cars. Currently, around 10% to 15% of our stations in Georgia are affected by this process. When considering our vehicles, if you're waiting for the perfect Tesla, you'll be waiting indefinitely. The same goes for investment; as every new factory tends to surpass the previous one because we enhance our learning with each iteration.

Yes.

Yes. Next question is at Cyber Rodeo, Elon mentioned that a futuristic driverless robotaxi vehicle is on the roadmap. When can we expect more details on the product offering to be unveiled? Is this something that people can own, or will this be only offered by Tesla as a service?

We want to be cautious and not rush into an exciting product announcement. Our goal is to hold a product event for the robotaxi next year where we can provide more details, and we are aiming for volume production in 2024.

All right. And maybe the last question from investors is, what is the current run rate of 4680 cell production at Fremont and at Giga Texas? What do you expect run rates of 4680 to be in Fremont and Giga Texas or Berlin at the end of the year?

Berlin is currently utilizing the 2170 nonstructural pack, which means they are not limited by the 4680. They plan to switch to the 4680 later this year, but the current production does not necessitate it. Additionally, we have the capability for the 2170 nonstructural pack at Giga Texas as a precaution. If everything proceeds as expected, we anticipate being in volume production with the 4680 by the end of the third quarter and definitely in the fourth quarter. Is that correct?

Yes. And the other thing I would add is like with the China COVID shutdown and the semiconductor bottlenecks we had through Q4 and hence a little bit in Q1, we have sizable cell inventory at the moment and excess cells to support the 2022 volume targets you described. So, that gives us the ability to be pretty deliberate in the 4680 ramp where we can maximize learning step by step, take engineering downtime to upgrade key pieces of equipment, and modify the structural pack design to improve reliability, all while achieving what you just said, so.

Yes. 4680 output is not a risk to achieving 1.5 million vehicles produced this year, but it would become a risk next year if we do not solve volume production by early 2023, but we’re highly confident of doing so.

Thank you very much. Let’s go to analyst questions now. The first question comes from Dan Levy from CSFB. Please go ahead and unmute yourself.

Hi. Good evening. Thank you for taking the questions. First, maybe you can just talk through or address what some of the drivers of cost improvement were in the quarter. Was it just further improvements within Shanghai or in Fremont? Anything around sort of ongoing kaizen that you’ve talked about in the past? Maybe you could just talk through what you benefited from in the first quarter.

Sure. I mean, at a high level, cars produced in Shanghai do carry a lower cost structure than cars produced in Fremont. And so, as our mix of cars shift towards Shanghai, the average cost is positively impacted by that. We’re also seeing some progress in manufacturing efficiencies in Fremont, particularly on the S and X side as volume increases improves there. Expedites have been a huge story for the company. In Q4, we had massive amounts of expedites. Q1 was still quite large, but we did make progress on bringing that down some.

Special mention goes to the Fremont manufacturing team and our associates there because we’re achieving record output at Fremont.

Yes. The Fremont team is doing a tremendous job. Really absolutely from the back quarters.

It’s challenging to downplay the situation with the complicated logistics that arose due to COVID.

Yes. And to Elon’s point, the Fremont team and also the Shanghai team have been extremely dynamic with the unpredictable nature of our part arrivals, and our supply chain team, in particular, the production planning portion of supply chain. We often get very little notice when there are part shortages coming, and it’s kind of a scramble a couple of days before that part is supposed to arrive to figure out how to get it here. And so, the amount of Herculean effort that goes in to produce a quarter like Q1 and even the quarters before that is absolutely immense.

There’s a saying in the military, it’s like amateurs talk about tactics, professionals talk about logistics when it comes to war.

Yes. So, there were some inherent cost improvements, as I mentioned, but there are also offsets that we’ve talked about previously on raw materials, commodities. Outbound logistics continues to remain a challenge despite a ton of efforts to increase capacity there and bring those costs down.

Second question, one of the initial goals of Model 3 way back when was to have an EV that was affordable for a wide portion of the market. And we know prices are much higher now just given the supply constraints. Prices are higher for all other automakers. We know that there’s inflation that you’re battling through, and some of that needs to be passed through the price of the vehicles. And you’re going to be supply-constrained for the foreseeable future. So, it’s one of the points. But given the goal long term of making EVs more widely available to the masses over time, how do you look at the progression of prices over time?

We genuinely want to make electric vehicles as affordable as possible. However, it's been quite challenging, especially considering that inflation is at a multi-decade high. I believe the official figures actually downplay the true extent of inflation. It seems likely that inflation will continue for the remainder of this year, based on discussions with suppliers who are facing significant cost pressures. In fact, we've seen suppliers requesting cost increases of 20% to 30% for parts compared to last year. There is considerable cost pressure, which is why we have raised our prices. When inflation is high and we have orders that stretch out for a year or more, we need to account for these cost increases. Nevertheless, particularly with regard to robotaxis and autonomy, I believe we will provide consumers with the lowest cost per mile of transport they have ever experienced, potentially offering costs that are 5 to 10 times lower per mile. It’s a significant improvement.

And therefore, accessible to everybody.

Yes. I mean, looking at some of our projections, it would appear that a robotaxi ride will cost less than a bus ticket, a subsidized bus ticket or subsidized subway ticket.

Thank you very much. Let’s go to the next question from Rod Lache from Wolfe Research.

Hi, everybody. I’m trying to better understand your comments regarding inflation, supply constraints, and battery materials, as well as the internal initiatives you are taking to secure these resources. It seems like you have confidence in Tesla's ability to address these issues. However, do you perceive this as a limitation on the broader adoption of electric vehicles?

Yes, absolutely. What’s helping us keep costs down in the short term is our long-term contracts with suppliers, but those contracts will eventually expire, leading to potential significant cost increases. Looking at the broader picture, the key factor in transitioning to sustainable energy quickly is the output of lithium-ion cells. The critical limiting factor here is how fast we can increase the gigawatt hours produced per year by these cells. This rate will be determined by the slowest part of the entire supply chain. Right now, we’re facing challenges with lithium. It's important to clarify that there isn't a lack of lithium ore in the world; in fact, lithium is quite abundant. However, it's necessary to extract the ore and refine it, which requires substantial industrial equipment to process lithium ore into forms like lithium hydroxide or lithium carbonate suitable for battery cells. We believe the industry will need assistance in this area, but it is moving quickly. I encourage entrepreneurs interested in the lithium market. The current margins in lithium are very favorable, resembling software margins. Reports suggest that the spot lithium price can be ten times higher than extraction costs, indicating around 19% margins. We would welcome more participants to enter the lithium market. If you're interested in making money, the lithium business could be a great opportunity for you.

Interesting. We'll wait to see what happens with that. My second question is it's remarkable to observe a modest increase in the cost of goods sold per vehicle, especially considering the commodity trends we've seen. Additionally, there are significant savings opportunities with 4680 cells, manufacturing changes, anode chemistry, structural packs, and giga castings. Are you implying that these may not be enough to counterbalance the inflation you're experiencing, and that additional pricing will be necessary alongside these initiatives?

We hope we won’t have to raise prices any further. The current pricing reflects our expectations regarding possible cost growth. If this anticipated growth in costs does not happen, we may even consider lowering prices slightly. Therefore, we do not plan for significant price increases at this time. However, we recognize that we do not control the broader economic factors. If governments continue to print large amounts of money and if there are not substantial increases in lithium extraction, refinement, and other raw materials, competition for these limited resources could drive prices up. If you have insight into the future, we will adjust our strategy accordingly. Nevertheless, the current prices are based on vehicles that will be delivered in about 6 to 12 months. This represents our best estimate.

But I think if you zoom out, right, like as you said, our mission is to accelerate the transition to sustainable energy. So, we are working with our existing suppliers and others to figure out how to grow all of these raw materials as quickly as possible to not slow down the transition.

Yes.

And whether that means we have to get directly involved in some cases or not comes down to the counterparty and their willingness to expand at the rate we think they should be able to expand. And that’s similar to what we’ve done with everything else, like we built a Gigafactory in Reno because it needed to be done. And so, like we will do what needs to be done to not slow down the transition. And affordability is a goal because it’s unaffordable. It’s going to retard the growth of what is inherently a good thing that we can’t have that as an outcome.

Thank you. The next question comes from Pierre Ferragu from New Street Research.

Thanks. Can you hear me well?

Yes.

Great. I’d like to ask you some questions about free cash flow. In the long run, considering your performance and growth model along with your ambitions, I quickly calculated that you could have around $400 billion to $500 billion in cash by the end of the decade. I was curious if this is something you have thought about.

If inflation continues to rise, $500 billion could be worth about $20 billion today. I'm not sure. We'll see what $500 billion can buy in ten years, but it may not go as far. It seems like a significant amount of cash. I'm uncertain. We'll aim to use it effectively. I understand that's a concern, for sure.

We need to proceed step by step. Currently, we're making investments to get Austin and Berlin operational. Additionally, as Elon mentioned, we're working on establishing the capacity for robotaxi production. There are some decisions that we will share in the future regarding what the economic model will be for robotaxi. Elon and I have discussed this in detail.

Maybe just everyone.

Yes. So, our focus is to get to the point where robotaxis are on the road, Optimus is in use, get the economic model for that dialed in, and then evaluate the size of cash flows at that point and make decisions then as to what’s next.

Pierre, do you have a follow-up question?

Elon and I have discussed this. So, our focus is to get to the point where robotaxis are on the road, Optimus is in use, get the economic model for that dialed in, and then evaluate the size of cash flows at that point and make decisions as to what’s next. Pierre, do you have a follow-up question?

All right. Let’s go to the next one. The next question comes from Trip Chowdhry from Global Equity Research.

Thank you. Two questions I have. First is regarding the Cybertruck. And I was wondering like in terms of number of parts, how would Cybertruck compare with the traditional pickup truck in terms of number of parts? The second question I have is on Gigafactory Nevada, Sparks. Will we have any production of vehicles in that factory, or all the future production will happen in Giga Austin? Thank you.

I’m not sure if we’ve actually done a comparison of Cybertruck parts versus regular truck parts. I mean, Lars?

Yes. It depends on the type of part. We still have cells in production.

Mention count.

If we don’t count that, like the simplicity of our structure is significant versus a traditional pickup truck or any other vehicle, like as we’ve talked about their gigacastings, we save hundreds of parts there.

The entire rear of the car is made from a single cast.

With the Cybertruck and its doors, we have an exoskeleton design that can withstand impacts without the need for traditional door reinforcements. I don't often refer back to older technologies to gauge my progress; I check occasionally. Generally, our architecture is continuously evolving to simplify and reduce the number of parts. Excluding the battery cells, we likely have a reduction of 20% to 30%.

All right.

Okay.

Do we expect to expand? Yes, we do expect to expand Giga Nevada. There’s a lot of room for expansion there, and we do expect to increase output from Nevada, but by far, the biggest increase in output will be from Giga Texas.

Thank you very much. The next question comes from Alex Potter from Piper Sandler. Alex, can you hear us?

Yes. Hi Martin, can you hear me?

Yes.

Okay, great. So first question I had was the extent to which other plants outside of China are insulated from any further upstream supply bottlenecks that we may have in China. Obviously, if this COVID lockdown things get out of hand, clearly, that’s going to continue impacting Shanghai. But is there a point at which it could actually also impact other facilities?

Yes. If it continues, there are some parts sourced in China that apply globally, which could impact production elsewhere. However, all indications suggest that our Giga Shanghai is already back in production at fairly high levels, and so are our suppliers. Therefore, we don’t anticipate this becoming a significant issue.

Okay. Thanks. Second question, obviously, the higher profitability that you guys have been able to experience over the last couple of quarters, a lot of that is reflecting sort of 'real' improvement. Another part of it is because we’re no longer paying you, Elon, as much as we were. And so I’m wondering the extent to which you and the Board are in the process of contemplating another one of these long-term compensation packages, which in the past have seemed to work quite well. Thanks.

There are no discussions currently underway for incremental compensation for me.

Thank you. The next question comes from Colin Langan from Wells Fargo.

Great. Do you guys hear me?

Yes.

I apologize for continuing to bring up the raw material issue related to batteries, but it's clearly significant. How quickly can we increase the supply of raw materials? My understanding is that it takes many years to develop that capacity. Are we facing a potential lithium or nickel shortage? Is there enough time to establish the necessary mining capacity? Additionally, how quickly can you transition to LFP to address the nickel concern?

I’ll address the LFP question. As mentioned in our letter, half of our products were LFP last quarter, which highlights our quick response. This shift wasn't due to a raw material shortage, but rather because it made sense to change our cathode chemistry. There's still more to explore regarding cathodes, and we are actively working on it to maintain flexibility based on market conditions and to utilize various competitive cathode options for our vehicles. Specifically regarding cathodes, we believe flexibility is key to our strategy. Many materials needed for cathodes are relatively easy to secure, and a lot of them are already widely available. Even if all batteries globally used these cathodes, it would result in less than a 1% increase in total annual output. On lithium, it really hinges on the resource itself. For some resources, like extracting rocks, the process may require additional paperwork and some blasting and trucking operations. Refining, though more complex, is manageable and less extensive than oil refining. The timeline for bringing lithium refining operations online is around 1 to 2 years. We have been in discussions with lithium suppliers for many years, and many projects are set to launch this year and next. Some current dynamics in the lithium market don't accurately reflect supply and demand fundamentals, which is frustrating. Looking ahead to 2030, we will need 15 to 20 terawatt hours of lithium to continue our growth trajectory, so it's essential for all players in the lithium sector to increase their production. I'm not sure that fully answers the question.

Yes.

Fantastic. Thank you very much. So, let’s go to the last question from Mark Delaney from Goldman Sachs.

Yes. Good afternoon. And thank you very much for taking the questions. I was hoping you could comment on your latest thoughts about potentially opening up the charging network in the U.S. to non-Tesla orders. I mean, certainly, it’s really important to have a good experience for Tesla owners in terms of wait times and charge installs. But Tesla is able to have enough capacity, it could be a really good way to bring other vehicle owners into the Tesla network, perhaps help Tesla to sustain its network benefits and maybe make more people likely to buy Tesla vehicles in the future.

Yes. As Elon has said, and as we’ve publicly committed, yes, we do plan to provide third-party vehicle access in all over the world, not just in Europe, where our original pilot was. And we are working on solutions in North America, which is a little bit more problematic with our connector being different than others, but we are moving in that direction. I don’t know if you want to add.

Yes, I think there’s nothing more to be said on that, but we want to do the right thing with respect to the whole system.

And we’re going faster on adding chargers. With the growth of the cars that we’re producing and then anticipating what you were discussing, overall charger capacity is really important. And so, the pace of our investment in supercharging has accelerated.

Absolutely.

Okay. That’s helpful. And for my second question, could you share any more details on Tesla Insurance, in particular, as you roll it out in more states. Are there any metrics you can share on what take rates have been like? And how do profitability margins on the insurance offering compare to the corporate average? Thank you.

So, we just launched Tesla Insurance for real-time insurance in Virginia, Colorado, and Oregon earlier this week. Maybe one step that I’ll share. So, Texas is our longest-standing real-time insurance market. But based upon the information that we have, Tesla is the second largest insurer of Teslas in the State of Texas. And possibly by the end of this quarter, maybe early next quarter, we’ll be the largest insurer of Teslas. And so, the customer reception to this has been quite positive. And I was reading social media on Monday after we launched in the three new states, a lot of folks who are reporting their stories of saving quite substantial amounts of money relative to their previous insurance. And so, we’re quite encouraged by that. And we’re working as quickly as we can to get to 80% of customers having access to a Tesla Insurance product by the end of this year in the United States, at which point we’ll pivot our attention to expansion outside of the U.S. The other thing I’ll say on insurance is with these three new states, the model is different because we are now the underwriter, and we are also now holding the risk. And so, with those states, we are a fully vertically integrated provider of insurance from systems and financials. With respect to the financials of the program, it’s still very early. And so, as the program gets more scale, happy to share more information on that.

I noticed that having real-time feedback on driving habits is leading to Tesla owners driving their cars more safely because they can see how their actions affect their insurance rates. When they receive a real-time score, they understand that by making certain changes to their driving habits, they can reduce their insurance costs. This creates a feedback loop that encourages safer driving, and we are indeed seeing that people are driving more safely, which is a positive outcome.

It’s safer on average, what we see in the data, to Elon’s point, and premiums are lower. We see that in the take rate data, we have extremely high retention for customers who experience the product. And I think I’ve talked about this in the past, but this has become a real passion program for us for these benefits. It’s bigger than just the economics. We’re trying to do a good thing here for our customers, save people money and make the roads a little bit safer.

Yes, I believe it enhances overall macroeconomic efficiency. It acts as a feedback mechanism for Tesla since we can analyze the causes of both major and minor crashes. We then consider how to modify the car's design or software to reduce the chances of such accidents. While most accidents are minor, we aim to decrease their frequency and expedite the repair process associated with them. Ideally, we envision same-day repairs for collisions, which would represent a significant improvement compared to the current situation where individuals may wait for a month while insurance claims are processed, as Tesla is also involved in collision repair.

Yes, the feedback loop is instant.

Yes.

Right. So, I mean, we do claims management in-house. And so, we receive the notification that there’s an accident, we work to prepare the estimate. And we can, with the support of our customers, use our collision centers to do the repair. And so, it’s full end-to-end visibility. And all of that, to Elon’s, we can then identify areas of cost inefficiency, feed those back to our engineering teams or elsewhere, software teams, actually improve the product. This lowers the cost of insurance, improves the reliability of the product. So, it’s a full circle.

Yes. And basically, the customer experience is just vastly better because if there’s an accident, there’s no argument. We’ll repair it immediately. And this is as compared to arguing with an insurance company and then a claims adjuster and then a collision repair center. And this can be a nightmare basically. So we’re trying to turn a nightmare into a dream with Tesla Insurance.

Fantastic. Thank you very much. Unfortunately, that’s all the time we have for this quarter. So, thank you very much for all your great questions, and we’ll speak to you again in three months.

Thank you.